Question 1

If the income effect counteracts the substitution effect,we know that the good in question is a(n)

Accepted Answer

A)  complementary good. 
B)  inferior good. 
C)  luxury good. 
D)  normal good. 
A)  complementary good. 
B)  inferior good. 
C)  luxury good. 
D)  normal good.

Question 2

The marginal rate of substitution is

Accepted Answer

A)  the slope of a budget constraint. 
B)  always constant. 
C)  the slope of an indifference curve. 
D)  the point at which the budget constraint and the indifference curve are tangent. 
A)  the slope of a budget constraint. 
B)  always constant. 
C)  the slope of an indifference curve. 
D)  the point at which the budget constraint and the indifference curve are tangent.

Question 3

Figure 21-5
 
-Refer to Figure 21-5.In graph (a),if income is equal to $120,the price of good Y is

Accepted Answer

A)  $3. 
B)  $4. 
C)  $10. 
D)  $12. 
A)  $3. 
B)  $4. 
C)  $10. 
D)  $12.

Question 4

Figure 21-1  
-Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

Accepted Answer

A)  A. 
B)  E. 
C)  A and E. 
D)  None.All points are affordable. 
A)  A. 
B)  E. 
C)  A and E. 
D)  None.All points are affordable.

Question 5

If we observe that a consumer's budget constraint has shifted outward,we can assume that the consumer will buy

Accepted Answer

A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods. 
A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods.

Question 6

Figure 21-16  
-Refer to Figure 21-16.When the price of X is $6,the price of Y is $24,and income is $48,Steve's optimal choice is point C.Then the price of Y decreases to $6.Steve's new optimal choice is point

Accepted Answer

A)  A. 
B)  B. 
C)  D. 
D)  E. 
A)  A. 
B)  B. 
C)  D. 
D)  E.

Question 7

Figure 21-8  
-Refer to Figure 21-8.If the price of good X is $3,and your budget constraint is BC,what is the price of good Y?

Accepted Answer

A)  $3.33 
B)  $5 
C)  $15 
D)  $30 
A)  $3.33 
B)  $5 
C)  $15 
D)  $30

Question 8

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 9

Figure 21-2  
-Refer to Figure 21-2.A consumer who chooses to spend all of her income could be at which point(s)on the budget constraint?

Accepted Answer

A)  V only 
B)  Z only 
C)  V,W,X,or Y only 
D)  W,X,or Y only 
A)  V only 
B)  Z only 
C)  V,W,X,or Y only 
D)  W,X,or Y only

Question 10

When two goods are perfect substitutes,the marginal rate of substitution

Accepted Answer

A)  is constant along the indifference curve. 
B)  decreases as the scarcity of one good increases. 
C)  increases as the scarcity of one good increases. 
D)  changes to reflect the consumer's changing preferences for the goods. 
A)  is constant along the indifference curve. 
B)  decreases as the scarcity of one good increases. 
C)  increases as the scarcity of one good increases. 
D)  changes to reflect the consumer's changing preferences for the goods.

Question 11

Figure 21-2.The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-2.Suppose the consumer's income is $90 and Budget Constraint A applies.What is the price of a light bulb?

Accepted Answer

The price

Question 12

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct. 
A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct.

Question 13

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Accepted Answer

A)  perfect substitutes. 
B)  perfect complements. 
C)  very close substitutes. 
D)  very close complements. 
A)  perfect substitutes. 
B)  perfect complements. 
C)  very close substitutes. 
D)  very close complements.

Question 14

Given a consumer's indifference map,the demand curve for a good can

Accepted Answer

A)  be derived by moving a consumer's budget constraint as her income falls. 
B)  be derived by moving a consumer's budget constraint as her income rises. 
C)  be derived by moving a consumer's budget constraint as the market price of one good changes. 
D)  not be derived from consumer theory. 
A)  be derived by moving a consumer's budget constraint as her income falls. 
B)  be derived by moving a consumer's budget constraint as her income rises. 
C)  be derived by moving a consumer's budget constraint as the market price of one good changes. 
D)  not be derived from consumer theory.

Question 15

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively

Accepted Answer

A)  more expensive,so the consumer buys more Pepsi. 
B)  more expensive,so the consumer buys less Pepsi. 
C)  less expensive,so the consumer buys more Pepsi. 
D)  less expensive,so the consumer buys less Pepsi. 
A)  more expensive,so the consumer buys more Pepsi. 
B)  more expensive,so the consumer buys less Pepsi. 
C)  less expensive,so the consumer buys more Pepsi. 
D)  less expensive,so the consumer buys less Pepsi.

Question 16

Figure 21-8  
-Refer to Figure 21-8.You have $36 to spend on good X and good Y.If good X costs $6 and good Y costs $12,your budget constraint is

Accepted Answer

A)  AB. 
B)  BC. 
C)  CD. 
D)  DE. 
A)  AB. 
B)  BC. 
C)  CD. 
D)  DE.

Question 17

If an increase in the interest rate lowers savings,then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information.

Question 18

A consumer likes two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer.   Which of the following properties of indifference curves would this consumer's preferences violate?

Accepted Answer

A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves. 
A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves.

Question 19

A consumer chooses an optimal consumption point where the

Accepted Answer

A)  marginal rate of substitution exceeds the relative price ratio. 
B)  slope of the indifference curve equals the slope of the budget constraint. 
C)  ratio of the prices equals one. 
D)  All of the above are correct. 
A)  marginal rate of substitution exceeds the relative price ratio. 
B)  slope of the indifference curve equals the slope of the budget constraint. 
C)  ratio of the prices equals one. 
D)  All of the above are correct.

Question 20

The marginal rate of substitution is the slope of the budget constraint.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

If the income effect counteracts the substitution effect,we know that the good in question is a(n)

The marginal rate of substitution is

Figure 21-5 -Refer to Figure 21-5.In graph (a),if income is equal to $120,the price of good Y is

Figure 21-1 -Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

If we observe that a consumer's budget constraint has shifted outward,we can assume that the consumer will buy

Figure 21-16 -Refer to Figure 21-16.When the price of X is $6,the price of Y is $24,and income is $48,Steve's optimal choice is point C.Then the price of Y decreases to $6.Steve's new optimal choice is point

Figure 21-8 -Refer to Figure 21-8.If the price of good X is $3,and your budget constraint is BC,what is the price of good Y?

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Figure 21-2 -Refer to Figure 21-2.A consumer who chooses to spend all of her income could be at which point(s)on the budget constraint?

When two goods are perfect substitutes,the marginal rate of substitution

Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.Suppose the consumer's income is $90 and Budget Constraint A applies.What is the price of a light bulb?

Indifference curves tend to be bowed inward because of diminishing

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Given a consumer's indifference map,the demand curve for a good can

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively

Figure 21-8 -Refer to Figure 21-8.You have $36 to spend on good X and good Y.If good X costs $6 and good Y costs $12,your budget constraint is

If an increase in the interest rate lowers savings,then

A consumer likes two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following properties of indifference curves would this consumer's preferences violate?

A consumer chooses an optimal consumption point where the

The marginal rate of substitution is the slope of the budget constraint.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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